Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether an allowance received for board and lodging or transportation must be fully included in an employee’s income when it is determined to be in excess of a reasonable amount? Whether Form TD4 must be completed?
Position: See response.
Reasons: See response.
Author: Baltkois, Thomas
Section: 6(1)(b); 6(6); 8(10); 230(1)
Taxpayer Services Directorate April 10, 2015
Taxpayer Services and Debt
Management Branch Income Tax Rulings Directorate
Business and Employment Division
Attention: Anne Matthew
Employment at a special work site
We are writing in response to an email dated November 18, 2014, which concerns employment at a special work site. You have asked about the taxability of board and lodging or transportation allowances that are determined to be in excess of a reasonable amount (higher-than reasonable allowances). You have also asked whether Form TD4, Declaration of Exemption - Employment at a Special Work Site, must be completed.
Taxability of board and lodging, or transportation allowances that are in excess of a reasonable amount
Generally, paragraph 6(1)(b) of the Act requires that all amounts received by a taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose be included in income, unless the allowance:
* falls within the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) of the Act; or
* is excluded from income under subsection 6(6) of the Act, which deals with employment at a special work site or a remote location.
Subsection 6(6) of the Act generally provides that “an allowance (not in excess of a reasonable amount)” in respect of board and lodging or transportation, may be excluded from income in certain circumstances. At issue is whether an allowance that is determined to be higher-than reasonable (or any portion thereof) could be excluded from income under this provision.
Rulings document 2008-028419 concerned employment at a special work site and discussed the reasonableness of board and lodging allowances received by employees. In that document, we concluded that where an allowance is in excess of a reasonable amount or is expected to cover expenses other than board and lodging, it would not be excluded under subsection 6(6) of the Act.
This position was confirmed by the Tax Court of Canada (TCC) in Bergeron v. the Queen (Bergeron) (2011 DTC 1098). In Bergeron, the TCC was asked to consider whether a living allowance (equal to 50% of an employee’s salary) could be excluded from income under subsection 6(6) of the Act, or was required to be included in income because it exceeded a reasonable amount. The TCC concluded that an allowance which exceeds a reasonable amount would not satisfy the conditions of subsection 6(6) of the Act and the entire allowance would be included in income under paragraph 6(1)(b) of the Act.
In our view, the Bergeron decision and Rulings document 2008-028419 are consistent with the intended application of subsection 6(6) of the Act and support the inclusion of the entire higher-than reasonable board and lodging or transportation allowance in income under paragraph 6(1)(b) of the Act. This tax treatment is also consistent with the CRA’s position concerning other higher-than reasonable allowances received by employees (e.g., motor vehicle allowances, travel allowances provided to part-time employees, and educational allowances).
However, you have stated that the current version of Guide T4130, Employers’ Guide – Taxable Benefits and Allowances, (Chapter 3, Board, lodging, and transportation – Special work sites and remote work locations) appears to indicate that only the portion of the allowance in excess of a reasonable amount would be included in income where the conditions of subsection 6(6) of the Act have otherwise been met. In our view, if the comments in Guide T4130 are interpreted in this manner, it would result in a tax treatment that is not consistent with the TCC decision, our interpretation of subsection 6(6) of the Act, and the CRA’s current assessing practice.
Requirement to file or complete Form TD4
In certain circumstances, the Act requires a taxpayer to complete or file a prescribed form. For example, subsection 8(10) of the Act states that no amount may be deducted under certain provisions in section 8 of the Act unless the employee files Form T2200, Declaration of Conditions of Employment, signed by his or her employer. However, there is no similar provision or requirement under the Act with regard to Form TD4, the timing of its completion, and the application of subsection 6(6) of the Act.
In the absence of a duly completed Form TD4, the CRA will generally permit the exclusion of reasonable allowances received for board and lodging or transportation from income, if an employee is able to demonstrate that the requirements of subsection 6(6) of the Act have been met.
Even though there is no legislative requirement that an employer and employee complete or keep Form TD4, subsection 230(1) of the Act generally provides that every person carrying on business and every person who is required to pay taxes under the Act shall keep records and books of account at the person’s place of business or residence in Canada in such form and containing such information as will enable the taxes payable under the Act to be determined.
As a duly completed Form TD4 would contain information that would facilitate such a determination, it would seem appropriate for an employer and employee to complete and keep Form TD4 where they both believe that the conditions of subsection 6(6) of the Act have been met.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise to extend this waiting period), for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be e-mailed to: LPRA-PLAR ITR-DDI Access Team-Équipe d'Accès. In such cases, a copy will be sent to you for delivery to the taxpayer.
We trust these comments will be of assistance to you.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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